95% Mortgages

The New Mortgage Guarantee Scheme: 95% Mortgages

Our guest to talk about the return of 95% mortgages is Jamie Ben, Mortgage and Protection Adviser at CS Mortgage Solutions, based in Wetherby.

What do we mean by 95% mortgages?

A 95% mortgage is referring to the ‘Loan to Value’ – and it basically means that you can buy a home with a 5% deposit. The average deposit for a house tends to be 10%, but that can make it impossible for many First Time Buyers to get on the property ladder.

The Covid-19 pandemic caused lenders to worry that offering 95% mortgages were too risky, and so they withdrew these products from the market. Some even withdrew 90% loans.

The government has now stepped in and announced a Mortgage Guarantee Scheme in the Spring budget. It offers lenders financial support to encourage them to reintroduce 95% loans.

When will these mortgages be available?

Various mortgage brands have now said they will reintroduce 95% mortgage loans in April. While the details aren’t all available yet, this kind of scheme has been in place before. They were brought in by David Cameron’s government after the financial crisis.

The companies involved so far are Barclays, HSBC, Lloyds, NatWest, Santander, and Virgin Money. It seems likely that other big players will also follow suit.

What will this mean for borrowers?

These new mortgage deals will be a lifeline for people that have been struggling to buy a home. It also means that the lenders will be very busy in April managing all the applications and enquiries that will come their way.

It’s important to be aware that lenders could be inundated with new customers, as this could slow down your mortgage approval and even put your chain at risk.

Are Guaranteed Mortgages just for First Time Buyers?

No, these mortgages are open to any customer. But it’s important to consider your options carefully and make sure the mortgage you’re looking at is right for you and your specific situation.

For example, a Home Mover who currently has an 80% Loan to Value Mortgage could now really push themselves and aim for a higher bracket of property by taking out a 95% mortgage. While this might get them a wonderful house, they will have reduced the equity in their home, they will now have a higher interest rate and those monthly repayments will be much harder to manage as well.

How long will the Mortgage Guarantee Scheme run?

The Scheme will be in place from April until December 22, 2022. There is an end date because by that time there should be more certainty in the mortgage market.

What kind of mortgage product will be offered?

Part of the agreement with the government is that lenders have to provide a five-year Fixed-rate Mortgage. Most customers want to get a good, Fixed-rate deal as they know that their repayments will be affordable, and won’t increase or decrease month by month.

The government recognises that a Fixed-rate is the safest option for customers. It’s not going to go up or down, and if there is an interest rate spike, you’re going to be protected.

How does the Guarantee work?

The agreement is between the government and the lender. If a customer is unable to afford the mortgage and defaults on their payments, the government has committed to step in and absorb some of the financial loss for the lender. That makes the 95% mortgage less risky for the bank or building society.

Will it affect house prices?

This is just down to personal opinion, but some people in the market are saying that this will drive house prices up. Given that the stamp duty holiday has extended, the estate agents that we work with do believe that prices could increase.

There has also been a situation where fewer houses are available for the number of buyers, so it has been quite competitive to secure a home. It now appears that more properties are going up for sale, which is only going to be a good thing for buyers.

If I want to take advantage of the 95% mortgages in April, what should I do to get ready?

A vendor will be more interested in accepting an offer from someone who has done some mortgage research and perhaps has an Agreement in Principle from a lender.

So the more you can do to be clear about your buying position the better. If there are only four or five lenders that are part of the scheme it’s good to make sure that you meet their criteria. If not, then there is still time to explore the other options.

You should also be certain that you have a 5% deposit as well as the funds to pay the other costs involved in buying a house.

How can a Mortgage Broker help?

The earlier you talk to a Mortgage Broker, the better. Don’t rely on what other people tell you – it’s easy to hear that you’ll never get a mortgage because of all sorts of reasons. But a Mortgage Broker can make it possible for you to buy a home – and help you every step of the way.

It might be that a 95% mortgage is not the best route for you – or that another Help to Buy option would work better. It depends on your unique situation. A broker will make sure that you understand all the options and find a deal that’s right.